Unilateral tariff liberalisation

by Richard Baldwin

Vox
May 30, 2012

In the late 1980s, developing nations that had eschewed all forms of liberalisation began to cut their import tariffs unilaterally. This column explains how the communication-technology revolution was the shock that altered the political-economy equilibrium against infant-industry protection and in favour of joining international supply chains which involved tariff liberalisation.

For most of the post-war period, trade liberalisation was slow, involved only rich nations, and occurred only in the context of reciprocal bargains – multilateral GATT Rounds or regional trade agreements.

The reciprocity was critical. Since foreign tariffs would fall only if domestic tariffs did, each nation’s exporters fought against the protectionists within their borders. In this way, governments found it politically optimal to cut tariffs that they had previously found optimal to impose (Moser 1990).1 Developed nations, who played reciprocally in the GATT, lowered their tariffs; developing nations who didn’t play reciprocally in the GATT – due to so-called special and differential treatment for developing nations – did not cut their tariffs.

All this changed in the late 1980s. Developing nations that had previously eschewed all forms of liberalisation began to cut their tariffs unilaterally as seen in Figure 1.

Figure 1. Tariff liberalisation

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